The British economy has turned the corner after emerging almost unscathed from the post-11 September recession that gripped much of the world, the Governor of the Bank of England declared yesterday.
In an unusually upbeat assessment, Sir Edward George said Britain had already passed the "low point" and now looked set for recovery.
He said last year's economic slowdown had been exaggerated by the attacks on the World Trade Centre but insisted the world economy had not been changed in a "fundamental" way by the terrorist atrocities in America.
The Governor chose to issue his optimistic outlook in Westminster, to the cross-party Commons Treasury Select Committee. His remarks will raise hopes that the recent wave of job cuts across industry is coming to an end. And his message chimed with the Government's official forecast that Britain is set for strong growth next year.
Sir Edward warned MPs not to read too much into Wednesday's figures that showed the UK economy unexpectedly ground to a halt in the last quarter of 2001, marking its worst performance for almost a decade.
He told them: "I suspect that the fourth quarter figure may well have been affected by 11 September and it was probably a low point."
He pointedly contrasted the UK's performance with other European economies such as Germany, which is in recession, and France, where growth has fallen in the past quarter.
The Bank of England appears to be increasingly confident that its strategy of cutting interest rates from 6 per cent to a 37-year-low of 4 per cent over the period of 10 months has averted recession.
"What we have been doing is to try to offset the negative influences from abroad by boosting domestic demand," Sir Edward said.
The Bank's latest forecast shows economic growth, currently running at 1.7 per cent a year, recovering sharply during 2002 to reach almost 3 per cent by the end of the year.
The positive remarks, coupled with separate figures showing that house prices surged this month, will probably rule out any further cuts in interest rates.
But the Governor tried to calm fears the Bank was planning to increase interest rates sharply. Speculation of an imminent rise was triggered by figures in January showing inflation had its biggest rise for almost 10 years.
Sir Edward insisted: "There had been a great deal of press speculation that there was bound to be a dramatic rise in interest rates. I was pointing out that they should be careful how much weight they put on [that speculation]."
But MPs repeatedly voiced their worries that the Bank's strategy had created huge imbalances that could trigger a crash if it unwound suddenly.
Yesterday, Nationwide building society said house prices were rising at an annual rate of 14 per cent while, on Wednesday, many of the main banks said homebuyers took on a record amount of mortgage debt in January.
In stark contrast, manufacturing is in its deepest recession for a decade, exports have fallen to their lowest level for 20 years while companies' profitability and investment spending are at a 10-year low.
But Sir Edward defended the Bank's policy, saying: "We have taken the view that unbalanced growth is better than no growth at all."
He said that he was relaxed about the current boom in the consumer economy. "It has to be a concern but I don't lie awake at night thinking about it," he said.
His comments during the past fortnight have convinced the City of London that the Monetary Policy Committee will not raise rates when it meets next week.
Geoffrey Dicks, a UK economist at Royal Bank of Scotland, said: "The March MPC meeting was never a serious contender for the first rate rise."
Sir Edward's positive outlook was boosted by a large revision to the estimate for growth in the American economy yesterday.
The US government said the economy grew by 1.4 per cent in the final three months of last year, showing a lessened impact from 11 September. That compared with a first estimate of a paltry 0.2 per cent.
"The recession has ended," said Mickey Levy, chief financial economist at Bank of America in New York.Reuse content